Purchasing an AOW-gap: supplementing your pension
The **AOW-gap** is the difference between the pension you want to receive and the **AOW benefit** you will get. Many Dutch people receive only the **General Old Age Pensions Act (AOW)** after their retirement, which is often insufficient to live on. By purchasing the AOW-gap, you can increase your income after retirement. This article explains how to do this, what options you have, and what you need to know legally and financially.
What is an AOW-gap?
The **AOW-gap** arises when your **AOW benefit** is not sufficient to cover your living expenses. The AOW is a basic benefit you receive from your **AOW age** (67 years in 2024, gradually increasing to 68 years in 2030). This benefit is not high: in 2024, the maximum AOW benefit is approximately €1,600 gross per month (for 42 years of premium payments). For many people, this is insufficient, especially if they have not built up supplementary pension.
The **AOW-gap** is therefore the amount you need to achieve your desired income. This can vary, but many Dutch people aim for an income of at least **70% of their last earned salary** after retirement. By purchasing this gap, you can secure your financial future.
Legal basis and rules
Purchasing an AOW-gap falls under the rules of the **Financial Supervision Act (Wft)** and the **Pension Fund Act**. In addition, there are tax rules that are important, such as the **Income Tax Act 2001 (WIB 2001)**. The most important thing is that you can purchase the AOW-gap through a **supplementary pension**, such as an **individual pension plan (IPP)** or a **collective pension scheme**.
The option to purchase an AOW-gap is not legally required, but it is a popular option. You can do this through your employer (if they have a pension scheme) or independently through a **supplementary pension insurance**. The choice depends on your situation and financial possibilities.
How can you purchase your AOW-gap?
There are different ways to purchase your AOW-gap. The most common options are:
- Via your employer: If your employer has a **pension scheme**, you can often build up a supplementary pension. This can be done through a **premium increase** or by paying extra premiums yourself.
- Independent purchase: You can take out an **individual pension plan (IPP)** with a pension provider such as Aegon, NN Group or Achmea. You pay premiums yourself, which are later paid out as supplementary pension.
- Via a savings product: Some banks offer savings products specifically designed for purchasing an AOW-gap, such as a **life insurance with a savings component** or a **30% ruling** for self-employed persons.
- Via your own assets: If you have savings or investments, you can convert these into a **supplementary pension** or a **lifetime income** via a **purchase scheme** with a pension fund.
Options for self-employed persons
Self-employed persons often have less access to an employer pension. Nevertheless, there are options to purchase an AOW-gap:
- 30% ruling: If more than 30% of your income comes from self-employment, you can make use of the 30% ruling. This allows you to let a portion of your income run tax-free and use it to build up pension.
- Individual pension plan (IPP): You can take out an IPP and deduct the premiums from your taxable income.
- Life insurance: A life insurance with a savings component can help purchase an AOW-gap, provided you keep the insurance until at least your AOW age.
Practical examples
To make purchasing an AOW-gap clearer, we provide two practical examples.
Example 1: Purchasing via your employer
Situation: Jan (55 years old) earns €4,000 gross per month and has built up an employer pension of €1,200 per month. His AOW will be approximately €1,600 per month. Jan wants to maintain 70% of his last earned salary after retirement, which amounts to approximately €2,800 per month.
Calculation:
- AOW: €1,600
- Employer pension: €1,200
- Total current income: €2,800
- Desired income: €2,800 (70% of €4,000)
Example 2: Purchasing via an IPP
Situation: Sarah (40 years old) is self-employed and earns €3,500 gross per month. She has no employer pension and wants to receive €2,500 per month after retirement. Her AOW will be approximately €1,600.
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